Government has to be paid for
By W. James Antle III
web posted September 8, 2003
Milton Friedman is fond of reminding us that there's no such thing
as a free lunch. One shouldn't have to have a Nobel Prize in
economics to grasp this basic concept, yet unfortunately it does
seem to require some common sense that is not particularly
common.
Two items bring this to mind. During the most recent debate
between the Democratic presidential candidates, putative front-
runner Howard Dean reiterated his pledge to repeal every last bit
of the Bush tax cuts offering us this grand bargain: Go back to
paying Clinton-era tax rates and your health care is on Uncle
Sam. This is pretty close to the opposite of the bargain
Libertarian Harry Browne offered voters during his 2000
presidential bid, where voters would give up their favorite federal
program in exchange for never paying income taxes again. Which
deal you prefer probably says a lot about your philosophy of
government.
Some of Dean's opponents whacked him on the snout for
proposing a tax increase on the middle class. After all, a smart
Democrat like Bill Clinton would have only proposed to repeal
the portion of the tax cut that went to the richest 1 percent of
income earners (I thought some of these Democratic presidential
contenders said that it all went to the top 1 percent at the time
they were voting against the tax cuts – never mind, I guess "fuzzy
math" is no longer politically expedient). Dean retorted that
working families – that is, the kind of families that liberal
Democrats claim to represent in election years and then promptly
confiscate money from to bestow upon non-working families
once in office – would be happy to give up the $100 or so they
got from the Bush tax cuts if it meant that could have health
insurance.
Dean is essentially saying two things here, neither of which is
quite true. The first is that the tax cuts were trifling little things that
for the middle class didn't add up to much more than those $100
rebate checks. Sen. Joe Lieberman (D-CT) deserves credit for
pointing out that the reduction in the marriage penalty and other
tax relief produced savings for many middle-class families much
bigger than $100. But secondly, Dean is implying that the federal
government can provide universal health care if the average
family just ponies up $100. It will in fact cost a lot more than
that, as a cursory glance at the tax rates paid by our Canadian
friends (not to mention in several leading countries of Western
Europe) would indicate.
Socialized medicine is an appealing concept to a lot of
Americans, even many who realize that socialism doesn't work,
for obvious reasons. Workers who don't have health insurance,
especially those with families, worry about how to pay health
care costs and lay awake nights wondering how they would
manage in the event of a catastrophic medical emergency. Those
who do have health insurance know too well that HMOs can be
unpleasant to deal with. In short, everyone realizes that there are
flaws in the United States' current health care system and many
believe, partly because this is how it is done with varying levels
of success in other industrialized countries, that the best way to
rectify them is through some type of government takeover.
Leaving the arguments for and against a more government-run
health system aside for the purpose of this discussion, this much
should be clear: Government can't really provide free health care.
The people will still need to pay for it. This payment will merely
take other forms (taxes, mandated private expenditures that are
little different from taxes, rationing, etc.). But the bottom line is
that the provision of health care costs money and this is a reality
that government can't simply legislate away.
This brings me to the second item that reminded me of
Friedman's line about free lunch. I watched a brief interview with
a leading conservative journalist. He was asked if he was
concerned about the $480 billion deficit. This journalist said no,
he was not worried, because deficits don't really matter unless
the government is in a position where it is likely to default on the
money it is borrowing. And he assured us that we were a long,
long way away from that.
It's true that sometimes it is better to run a deficit than increase
marginal tax rates, depending on the financing costs and because
the former might have a less negative impact on the cost of
capital and incentives to produce. It is also true that deficit
spending may be appropriate in such extraordinary
circumstances as wars and economic downturns, both of which
we find ourselves in now. Certainly, a string of $500 billion
deficits is a small price to pay to defeat the monsters responsible
for the unprecedented attacks on our soil two years ago and
who are willing to contemplate more atrocities on that scale.
Nevertheless, I thought that "deficits don't matter" line to be
rather cavalier, especially for a conservative journalist. It was
difficult to avoid the impression that if one of the Democrats now
running were president rather than Republican George W. Bush,
he would put a slightly different spin on the subject. Government
borrowing still takes money out of the economy. Government
spending financed by deficits rather than taxes still has to be paid
for by someone, possibly future generations whose tax burdens
will be determined in part by our profligacy today.
Indeed, to the extent that the $480 billion deficit is a misleading
figure to get worried about, it is only because it masks the true
extent of the fiscal problems that lie ahead. The federal
government has assumed a number of entitlement obligations that
it will in coming years have increasing difficulty paying for. These
outstanding liabilities threaten to dwarf the annual deficit figures.
Lower tax rates do have a positive incentive effect on the
economy, but that doesn't mean that government programs still
don't need to be paid for. With marginal tax rates further away
from the Laffer Curve's prohibitive range than during the Reagan
years, this suggests a conflict between low taxes and government
growth that many of my conservative compatriots are unwilling to
contemplate.
At the risk of sounding like Ross Perot, Americans are faced
with a bipartisan refusal to deal with the fact that government
programs aren't free. Too many Republicans believe it is fiscally
responsible to continue growing government as long as it is
financed by deficits rather than taxes. Too many Democrats
define fiscal responsibility as taking as much of the people's
money in taxes as politically possible and continuing to grow
government as long as the budget is balanced.
Neither approach is fiscally responsible in the long term. What is
needed is not higher taxes or more borrowing. It is less spending
and a rethinking of the proper role of government. The U.S.
government is trying to be an unlimited welfare state, a world
policeman and a guarantor of the liberty and security of the
American people all at the same time. Only one of these roles fits
in with our federal government's constitutional purpose and only
one is really a legitimate aim of government.
But all of them cost money. The American people need to
decide how much they are willing to pay and what they believe is
most important to pay for. The "all things to all people" approach
may be politically appealing. It is just not indefinitely sustainable.
After lunch is over, the bill eventually comes.
W. James Antle III is a senior editor for Enter Stage Right.
Enter Stage Right -- http://www.enterstageright.com